Michael Rubin is always in the news. The founder and executive chairman of Fanatics is often courtside as the co-owner of the Philadelphia 76ers, placing bids for NFL teams, palling around with friend and rapper Robert “Meek Mills” Williams, or advocating for a cleaner justice system. But it all seems like a distraction; he’s quietly building a sports licensing monopoly. Behind the scenes, Kynetic is owned and operated by Rubin. It’s a fascinating company with a rich history; Rubin’s understanding of the internet’s marketing levers has helped Fanatics capture lightning in a bottle.
Shopping cart + Insatiable Demand + Product Exclusivity = Lightning
The parent company of Fanatics has built one of the more innovative and fundamentally-sound, online retailers in all of commerce. Valued at $4.5 billion, the private retailer is equal parts: marketplace, licensed manufacturer, and digitally-native brand. Rubin’s brand has amassed extraordinary power as a vertical retailer in its relatively short birth and rebirth. To better understand its evolution, review a corporate history that spans the majority of the online retail era. One can argue that Fanatics grew the first digitally native vertical brand.
vCommerce brands are born online. They cut out the middle by selling directly to consumer, maintaining 1:1 relationships with consumers. These brands manufacture, market, sell, and fulfill the products. They own the entire consumer journey.
The history of Fanatics is a complicated one. In 1991, Rubin founded KSR Sports, a sporting goods and footwear retailer. The company grew to $50 million in annual sales by 1995 but with razor thin margins. This pushed Rubin towards a v-commerce model, acquiring Apex One in 1996 and merging with Ryka in 1997 to form Global Sports Inc Commerce (GSI Commerce).
This reorganization moved Rubin and his team a bit closer to the licensed merchandising operation that we see today. But this period was more symbolic of another part of Fanatics DNA: logistics excellence. The company went on to move $100 million in GMV in 1999. Just two years later, GSI inked a deal with Dick’s Sporting Goods, Sports Authority, and Gart sports to provide their eCommerce solutions at scale. In a move that may have influenced Amazon’s early partnership with Toys “R” Us. From a 2017 Business Insider article:
Toys “R” Us may have set itself back when it signed a 10-year contract to be the exclusive vendor of toys on Amazon in 2000. Amazon began to allow other toy vendors to sell on its site in spite of the deal, and Toys “R” Us sued Amazon to end the agreement in 2004. As a result, Toys “R” Us missed the opportunity to develop its own e-commerce presence early on.
By 2002, GSI Commerce powered NASCAR’s first online store. The MLB, NHL, and NFL each followed suit by 2006. In a bit of irony, later that year – Toys “R” Us hired GSI to build its first native eCommerce experience after their failed Amazon experiment. After the NBA agreed in 2007, GSI became the first online retailer to partner with all major North American sports leagues.
To develop a brand around its professional sports focus, Rubin acquired the “Football Fanatics” name and operation in 2011. Football Fanatics was founded by Alan and Mitch Trager as a brick and mortar retailer in Suburban Jacksonville in 1995. After the brothers had trouble scaling beyond that point, Rubin swooped in to acquire it for $171 million and $101 million in GSI stock. By this time, GSI was managing 2.5 million square feet of fulfillment space. eBay would go on to acquire GSI Commerce for $2.4 billion in 2012.
Shortly thereafter, Rubin purchased the rights to Fanatics from eBay. In full – Rubin retained the rights to Fanatics, ShopRunner, and Rue La La: incorporating Kynetic as the parent company to the three online retail properties. Within one year, Andreessen Horowitz and Insight Ventures valued Fanatics at $1.5 billion, investing $150 million into the company. Fanatics would go on to raise capital from Alibaba Group, the Softbank Vision Fund, and Silver lake Partners. It shouldn’t surprise that Fanatics is considered one of the top three in sports apparel licensing. So in that Toys “R” Us / Amazon moment, Dicks Sporting Goods is now a chief competitor and Sports Authority is done for good.
What’s more impressive than the company’s trajectory is how Rubin continues to find innovative ways to reach new, top funnel customers.
Fanatics and Rubin’s Systemized growth
Just one of the latest partnership innovations, it was announced that a resurgent Kohl’s signed a long-term deal with Fanatics to distribute the sporting goods company’s licensed products through Kohl’s native channels. While Kohl’s stock price is not necessarily reflecting Kohl’s long-term investments, the department store is having its own renaissance. The brick and mortar retailer recently signed a deal with Amazon to handle service all returns, a play to cozy up with the eCommerce titan while improving a key performance indicator: increased foot traffic.
Later this fall, Kohl’s will amplify hundreds of thousands of Fanatics’ SKUs through its native channels. As such, Fanatics will gain access to a new, primed audience. In return, Kohl’s can earn third-party revenue without holding inventory. It is the perfect corporate marriage: Kohls.com averages 40+ million visits per month, a number that dwarfs Fanatics.com’s 5.2 million monthly visitors.
Earlier this year, Fanatics began selling merchandise on Walmart.com in a similar deal. That one supplied Walmart with coveted access to licensed apparel. In exchange, Fanatics’ products are in front of an estimated 305 million estimated monthly visitors. Unlike the Kohl’s agreement, Fanatics has a branded store on the Walmart site. This model resembles the company’s agreement with JCP, the middle-market retailer has begun to regroup by partnering with relevant brands like Fanatics.
A savvy move by CEO Doug Mack; these merchandising agreements are subtle signals to customers that Fanatics is a low-substitution brand. Mass-market retailers can barely compete in costly, licensed merchandising without a Fanatics co-sign. And in an effort to expand internationally, Fanatics also partnered with Coupang – South Korea’ largest online retail marketplace to launch a store within a store on the platform. This effort goes live this summer.
Consolidate and Capture
Rubin’s team built an extraordinary commerce play and retail brand atop key partnerships. This stack has helped Fanatics secure the rights to run the following stores:
- The National Football League | NFLShop.com
- The National Basketball League | NBAShop.com
- Major League Baseball | MLBShop.com
- NASCAR | NASCARShop.com
- Major League Soccer | MLSStore.com
Meanwhile, the list of merchandising acquisitions haven’t slowed for Kynetic. In 2012, it acquired one of its main rivals, Fansedge; in 2017, it bought Majestic and Lids, the brick and mortar hat retailer.
With the exception of Kohl’s agreement (one that was surely influenced by Amazon’s counsel), Fanatics has succeeded in maintaining its branding across its growing portfolio of retail partners. This has helped them maintain direct relationships with consumers. Fanatics built a competitive advantage where there was none. While far from the traditional DNVB, it’s become one of the most successful digitally native brands on the market by protecting intellectual property, achieving manufacturing superiority, and emphasizing industry-leading fulfillment operations.
Rubin and Fanatics found a way to modernize a commodity product; Fanatics is now the premier retailer for sports apparel. And it has a growing legion of fans who see what Rubin envisioned a long time ago. To own the merchandising market: you need airtight contracts, a great consumer experience, brand equity. Most importantly, you need strong, organic demand to offset steep licensing fees. This lack of organic demand has served as a death sentence for smaller licensing retailers; there’s little margin available for traditional CAC. More than ever, consumers see a team name on the front of a shirt, a player’s name on the back, a league patch on the sleeve, and a brand label that says “Fanatics.”
Michael Rubin’s decades-long eCommerce evolution may not have the typical arc of DNVBs. But Fanatics shares digitally-native DNA and there is a tremendous amount to learn from an operation that maintains growth while paying for less than 9% of its traffic. Modern brands should license a page from the Fanatics playbook.
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Report by Web Smith | About 2PM